Evolution of Customer Experience Personalization

Segmentation of customers & tailoring customer engagement based on segment traits has been in practice for quite some time. However, with advances in technology, today it is possible to capture salient features of every interaction with the client, either in person or through automated channels. Predictive AI tools leverage this data to advise the ‘next best action’ and make the engagement with the customer a highly personalized interaction, rather than a persona-based interaction. With advanced capabilities of transaction platforms, personalization of client experience is also moving on to the next level in terms of customizing products to suit personal preferences, leveraging technology.

This is becoming a differentiator in the Wealth Management (WM) business too. WM has earlier seen high personalization for the Ultra High Networth Individuals (UHNI) & High Networth Individuals (HNI) segments, with a high level of Advisor touch. With the increasing focus on the lower end of the retail segment of the WM business, & individual touch not being an option because of the numbers involved, wealth managers face the challenge of offering a personalized experience to these customers. On the other hand, studies have indicated a high degree of willingness of wealth management customers to share personal data with their wealth managers – even slightly more than their willingness to share personal information with their physician or a health worker – for a more personalized service or user experience. Significantly, the willingness is high among all age segments too. This indicates a huge potential for a more fruitful customer engagement through deep personalization.

Personal / Direct Indexing

Evolution of technology has increased the ability to capture & mine data at the individual level. It has also increased computing power and predictive analytical capabilities to process this data real time. Enabled by all this, personalizing customer experience in terms of product offerings and servicing for all the WM customer segments is gaining traction. Personalization of WM products is taking the form of enabling a larger segment of investors to have customized portfolios, rather than invest in passive products like ETFs or model portfolios. Access to personalized products such as Single Managed Accounts (SMAs) have typically been restricted to UHNIs & HNIs in the Retail segment and Institutional investors. However, advances in terms of next generation product platforms have enabled offering Direct / Personalized Indexing variations of the SMAs, at scale. Unlike traditional SMAs which offer completely customizable portfolios, Direct / Personal Indexing accounts typically offer limited customization within an overarching standard model.

The US has been the main adopter of Direct / Personal Indexing as part of portfolio strategy, which has become very popular among affluent clients. Enablement of trading in fractional shares and increased availability of zero fee trading accounts in the US have been key reasons for the increasing popularity of the product among investors.

AUM under Direct / Personal Indexing portfolios is estimated to have grown more than four-fold from about US $ 100 billion in 2015 to about US $ 450 billion as at the end 2022 & is expected to be a key investment option for investors going ahead. The last few years have seen major players in the WM business like Morgan Stanley, Blackrock, J P Morgan Chase, Vanguard, Franklin Templeton, Charles Schwab, Fidelity etc. move into Direct / Personal Indexing space, reflecting the perception on future growth potential of this product.

Why Personal / Direct Indexing?

Benefits of a Personal Indexing portfolio to a customer are in terms of:

1)Tax Loss Harvesting

The investor is having a profit from other sources or investment with other advisors, and a book loss on one of the stocks in the portfolio. The investor can realize losses on the individual stock, replacing it with a similar stock not forming part of the index on which the portfolio is modelled. The loss can be offset against profit from other sources, reducing tax liability and improving net gains, without a large deviation from the portfolio strategy.

2) Value Based Investing 

Investment in an alternate stock, similar in profile to the index stock, but preferred for other criteria like higher ESG compliance score, industry / country exposure, etc.

However, investors opting for Direct / Personal Indexing need to be actively involved in managing their investments, preferably with the help of a professional advisor. The strategy also makes sense only where there are other sources of income, the profits or losses accruing from which can be effectively managed. The WM firms benefit too, in terms of higher fees as compared to managing passive investments and also a stronger customer connect to grow their business.

Approach To Enabling Personal / Direct Indexing

A technology driven product, offering of Direct / Personal indexing product requires WM firms to acquire additional capabilities in terms of specialized technology platforms, besides trained manpower. This would include automated capabilities for advisory, trading, & portfolio management for this product, integration to client systems through digital channels for understanding client’s financial position & identifying tax loss harvesting opportunities, robo advisors capable of advising on tax loss harvesting opportunities & identifying alternate investments, Robotic Process Automation, etc.

WM firms have the option of building these capabilities inhouse or acquiring them inorganically. The last few years have seen multiple M&A deals in the US geography with focus on adding Direct / Personal Indexing product capabilities to their existing portfolio of offerings.

Some examples of acquisition activity with focus on acquiring Personal / Direct Indexing capabilities are:

An example of in-house capability development for Personal / Direct Indexing has been Fidelity’s Solo FidFolio platform.

Continuing evolution of platforms with more & more computing capabilities and technologies like AI, is likely to see further innovations in product personalization in the WM business in future.

Co-authored by Eswaran Swaminathan, and Venkatesh Padmanabhachari

Maveric’s thought leadership series – E.D.G.E (Experiences Delivered by Global Experts) – handpicks the game-changing technology ideas and pressing functional questions financial institutions must solve today.

These features – reports, whitepapers, podcasts, flyers, blogs, and infographics – are for Banking leaders and Technology evangelists to apply profound trends, the latest opinions, and transformational analyses to boost the performance of their organizations.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered  competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers

By 2024, digital platforms are projected to manage over 35% of global wealth, signaling a transformative shift in wealth management practices. This statistic underscores the critical importance of digital wealth management platforms for banks aiming to stay competitive and meet the evolving demands of today’s investors. For C-suite executives in the banking sector, leveraging these platforms is not just a strategic move—it’s imperative for capturing growth opportunities and delivering superior client experiences in a digital-first world.

These platforms represent a paradigm shift in managing wealth, offering unprecedented convenience, personalization, and efficiency. For C-suite executives in banks, understanding the strategic importance of these platforms is crucial for capturing growth opportunities and meeting the evolving expectations of affluent clients

The Rise of Digital Expectations

Today’s investors, especially millennials and Gen Z, who are set to inherit significant wealth in the coming decades, demand digital-first experiences. A recent study by Deloitte highlights that over 60% of wealth management clients prefer digital interactions for managing their investments. This shift underscores banks’ need to adopt digital wealth management platforms that offer a seamless, intuitive user experience across all digital touchpoints.

Leading banks such as JPMorgan Chase have recognized this trend, investing heavily in digital platforms that provide comprehensive wealth management solutions. These platforms facilitate online portfolio management and integrate advanced analytics to offer personalized investment advice, setting a new standard for client engagement in the wealth management sector.

Enhanced Personalization through AI and Big Data

The power of artificial intelligence (AI) and big data analytics has transformed wealth management services, enabling hyper-personalized investment strategies that align with individual client goals and risk profiles. Digital wealth management platforms leverage these technologies to analyze vast data, identifying patterns and insights that inform better investment decisions.

Goldman Sachs’ Marcus platform exemplifies this approach, using AI to deliver customized financial advice and tailored investment solutions. This level of personalization enhances client satisfaction and loyalty, driving competitive advantage in the wealth management industry.

Operational Efficiency and Cost Reduction

Digital wealth management platforms offer significant operational efficiencies, automating routine tasks such as account management, compliance checks, and transaction processing. This automation reduces operational costs and allows wealth managers to focus on higher-value activities, such as client relationship building and strategic investment planning.

Citibank’s digital platform, for instance, has streamlined its wealth management operations, achieving a notable reduction in processing times and operational costs. This efficiency improves the bottom line and enhances the client experience by enabling faster, more responsive service.

Expanding Access to Wealth Management Services

Digital platforms democratize wealth management, making it accessible to a broader range of clients, including those with lower investable assets. This inclusivity opens up new market segments for banks, driving growth in the wealth management sector.

For example, Bank of America’s Merrill Edge offers an online wealth management service that targets the mass affluent segment, providing access to high-quality investment advice and financial planning tools. This strategy has attracted new investors, expanding the bank’s client base and fostering long-term loyalty.

Navigating Regulatory Compliance with Ease

Regulatory compliance remains a significant challenge in the wealth management industry. Digital wealth management platforms, equipped with advanced compliance tools, can navigate this complex landscape more effectively. These platforms ensure adherence to regulatory requirements through automated monitoring and reporting, reducing non-compliance risk and associated penalties.

Wells Fargo’s digital wealth management service incorporates robust compliance features, ensuring that all investment advice and transactions meet the latest regulatory standards. This proactive approach to compliance protects the bank and its clients and reinforces trust in the digital platform.

Strategies for the Future

As we look toward the future, several strategies will be essential for banks seeking to maximize the potential of their digital wealth management platforms:

1) Invest in Cutting-Edge Technologies:

Continuous investment in AI, machine learning, and blockchain technology will enhance the personalization, efficiency, and security of digital wealth management services.

2) Focus on User Experience: 

Designing intuitive, user-friendly platforms is essential for meeting the digital expectations of today’s investors. This includes offering mobile access, real-time analytics, and integrated communication tools.

3) Expand Wealth Management Offerings: 

Developing a comprehensive range of digital wealth management solutions, from robo-advisory services to sophisticated investment tools, will cater to clients’ diverse needs across different wealth segments.

4) Strengthen Cybersecurity Measures: 

As wealth management services increasingly move online, prioritizing cybersecurity will be crucial for protecting client data and maintaining trust in digital platforms.

5) Embrace Regulatory Technology (RegTech):

Leveraging RegTech solutions can streamline compliance processes, ensuring that digital wealth management platforms remain aligned with evolving regulatory requirements.

Conclusion

The need for a digital wealth management platform in 2024 is undeniable. These platforms meet modern investors’ digital-first expectations and offer banks significant advantages in terms of personalization, operational efficiency, market accessibility, and regulatory compliance. By embracing digital transformation in wealth management, banks can secure a competitive edge, driving sustainable growth and building stronger client relationships in the digital age.

About Maveric Systems

Established in 2000, Maveric Systems is a niche, domain-led, BankTech specialist, transforming retail, corporate, and wealth management digital ecosystems. Our 2600+ specialists use proven solutions and frameworks to address formidable CXO challenges across regulatory compliance, customer experience, wealth management and CloudDevSecOps.

Our services and competencies across data, digital, core banking and quality engineering helps global and regional banking leaders as well as Fintechs solve next-gen business challenges through emerging technology. Our global presence spans across 3 continents with regional delivery capabilities in Amsterdam, Bengaluru, Chennai, Dallas, Dubai, London, New Jersey, Pune, Riyadh, Singapore and Warsaw. Our inherent banking domain expertise, a customer-intimacy-led delivery model, and differentiated talent with layered  competency – deep domain and tech leadership, supported by a culture of ownership, energy, and commitment to customer success, make us the technology partner of choice for our customers.